German Stocks Rally to Highest Level Since January 2008

By Jonathan Morgan -
Dec 6, 2012

German stocks rallied to their
highest level since January 2008 amid optimism that Republicans
will agree to higher taxes as part of a new U.S. budget, and as
factory orders in Europe’s biggest economy surged in October.

Bayer AG (BAYN) rose 3.4 percent as Germany’s largest drugmaker
sought permission to use one of its medicines to treat a new eye
condition. Beiersdorf AG (BEI) gained 2 percent as the maker of Nivea
skin cream raised its full-year sales forecast for the second
time in little more than a month.

The DAX Index (DAX) climbed 1.1 percent to 7,534.54 at the close
of trade in Frankfurt, its highest level since Jan. 15 2008. The
equity benchmark has rallied 26 percent from this year’s low on
June 5 as the European Central Bank approved an unlimited bond-
buying program and euro-area finance ministers eased the terms
of bailout loans to Greece. The broader HDAX Index jumped 1.2
percent today.

“Progress in the negotiations between Republicans and
Democrats in the U.S. has helped the market to reach a new year
high,” Soeren Steinert, who helps manage about $22 billion as
associate director for equities trading at Quoniam Asset
Management GmbH in Frankfurt, wrote in a message. “Volumes are
not high. Therefore, the market move right now is not supported
by a broad mass.”

The volume of shares changing hands in shares listed on the
DAX was 9.5 percent greater than the average of the last 30
days, according to data compiled by Bloomberg.

Budget Negotiations

In the U.S., some Republicans have signaled they will
accept President Barack Obama’s proposal to increase taxes on
higher earners. More than $600 billion of additional taxes and
spending cuts will come into force at the beginning of next year
unless politicians can agree on a new federal budget.

Republican House Speaker John Boehner proposed a $2.2
trillion plan this week to raise revenue by limiting tax
deductions, a measure that would mostly affect high earners. He
insisted he won’t agree to higher tax rates at any income level.

German factory orders jumped in October at almost four
times the pace that economists had forecast. Orders, adjusted
for seasonal swings and inflation, surged 3.9 percent from
September, the Economy Ministry in Berlin said today. It revised
September’s drop to 2.4 percent from 3.3 percent. The increase
in October exceeded the median forecast for a 1 percent gain in
a Bloomberg News survey of 42 economists.

ECB Forecasts

ECB President Mario Draghi said today that economic
weakness will persist into next year.

“Later in 2013, economic activity should gradually recover
as global demand strengthens and our accommodative monetary-
policy stance and significantly improved financial market
confidence work their way through to the economy,” he said at a
press conference in Frankfurt.

The central bank also left its benchmark interest rate
unchanged at a record low of 0.75 percent.

“Relatively clearer policy in Europe compared with the
U.S. is leading to an outperformance in European stocks,”
Daniel Weston, a portfolio manager at Aimed Capital Management
LLC in Munich, said in a message.

Bayer gained 3.4 percent to 72.54 euros as the drugmaker
applied for approval to sell its medicine Eylea as a treatment
for macular edema degeneration. European doctors already use the
drug for a different eye disorder.

Beiersdorf rose 2 percent to 61.73 euros after saying
revenue at its consumer business will grow more quickly than
estimated. Sales will rise more than 4 percent this year, the
Hamburg-based company said today. Beiersdorf had predicted
growth of about 3 percent. On Nov. 2, it increased the forecast
to between 3 percent and 4 percent.

Continental, Kuka

Continental AG (CON) rose 1.3 percent to 85.89 euros as the
Economic Times reported that Europe’s second-largest auto-parts
maker will invest 7.15 billion rupees ($132 million) in India.
The company will invest the money over the next three years, CEO
Elmar Degenhart was quoted as saying in the report.

Kuka AG (KU2), Europe’s largest maker of industrial robots,
surged 4.7 percent to 27.75 euros as Morgan Stanley initiated
coverage of the stock with an overweight rating, forecasting a
target price of 30 euros on the shares.

RWE AG (RWE) fell 1.4 percent to 31.79 euros. A gauge of
utilities companies posted the only decline of the 19 industry
groups in the Stoxx Europe 600 Index (SXXP) as GDF Suez SA tumbled
after forecasting that earnings will drop next year.